Martin Currie, AMP to Trade China Stock Futures After Approval

May 26 (Bloomberg) -- Martin Currie Ltd. and AMP Capital
Investors said stock-index futures will let them hedge in China
and more effectively compete with local fund managers as the
nation prepares to open the market to foreign institutions.

China will allow qualified foreign institutional investors,
or QFIIs, to invest in stock-index futures, the U.S. Treasury
Department said yesterday at the end of the U.S.-China Strategic
& Economic Dialogue in Beijing. There was no starting date in
the statement.

“I say it’s extremely likely we will make use of index
futures over time,” Chris Ruffle, who helps manage $19 billion
as China co-chairman of Martin Currie in Shanghai, said in a
phone interview. “We should be on even terms with domestic
institutions.”

The move will widen investment options for overseas
institutions in the world’s third-biggest stock market by value.
China restricts foreign investors to dollar-denominated B shares
traded in Shanghai and Shenzhen, while only institutions
approved under the QFII program can invest in yuan-denominated A
shares. The total combined quota for QFII funds is $30 billion,
a fraction of the stock market’s capitalization of $2.7 trillion.

Futures, or agreements to buy or sell the CSI 300 Index at
a preset value, began trading on the China Financial Futures
Exchange in Shanghai on April 16, while margin trading and short
selling was introduced March 31.

The approval “will help manage our exposure to China’s A
shares going forward in that it provides more flexibility and a
hedging tool,” said Shane Oliver, Sydney-based head of
investment strategy at AMP Capital, in an e-mail response.

Stock Market Slump

The CSI 300, which tracks 300 of the largest companies on
China’s two equities exchanges, has dropped 21 percent this year
on concern government measures to cool economic growth will hurt
earnings. The Shanghai Composite Index has slumped 20 percent
this year after surging 80 percent in 2009.

Leo Melamed, a director of CME Group Inc. who advised
Chinese regulators on the creation of the futures market, said
in January it might take two to three years for foreign
investors to trade stock-index futures in the nation.

China International Capital Corp. said it would take time
before foreign investors are allowed to trade stock-index
futures given the amount of money that they have and the limited
size of the futures market.

“The dialogue is of strategic long term in nature; so the
agreement may not be carried out immediately,” global equity
strategist strategist Hao Hong said in a report today. “The
futures market is about the same as the cash market. So if it is
immediately opened to international investors to participate it
could be a little tricky.”

Market Volatility

Index futures have added volatility to the spot market,
according to Mark Mobius, who oversees about $34 billion in
emerging-market assets as executive chairman of Templeton Asset
Management Ltd. He said in a May 13 interview that’s why he
wasn’t “surprised” by the slump in China stocks.

Manop Sangiambut, head of China A-share research at CLSA
Asia-Pacific Markets, also said last week that the introduction
of index-futures trading contributed to recent declines as
“some investors see it as an alternative investment rather than
a hedging tool.”

Opening up the futures markets to foreign investors “may
reduce volatility by allowing more participants to place
strategic bets,” said Peter Alexander, Shanghai-based principal
at Z-Ben Advisors, which provides research to fund management
companies, said in a phone interview. “This is fantastic
news.”